United States v. Lusk, CRIMINAL ACTION NO. 2:15-cr-00124

• Decision Date: 07 February 2017
• Docket Number: CRIMINAL ACTION NO. 2:15-cr-00124
• Court: United States District Courts. 4th Circuit. Southern District of West Virginia
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. CHADWICK LUSK, Defendant.

UNITED STATES OF AMERICA, Plaintiff, v. CHADWICK LUSK, Defendant.

CRIMINAL ACTION NO. 2:15-cr-00124

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA CHARLESTON DIVISION

February 7, 2017

MEMORANDUM OPINION AND ORDER

Pending before the Court is the factual-basis determination for Defendant's proposed plea. For the reasons provided herein, the Court FINDS that there is a factual basis for Defendant's proposed plea.

I. Background

This case arises out of a fraudulent scheme orchestrated around the Mountain Laurel Mining Complex ("Mountain Laurel"). Mountain Laurel is owned by Mingo Logan Coal Company ("Mingo Logan"), which, in turn, is a wholly owned subsidiary of Arch Coal, Inc. ("Arch Coal"). (ECF No. 5, Ex. B at 1.)

Defendant worked at Mountain Laurel between "approximately late 2006 to March 2014." (Id.) "Beginning sometime around 2009," Defendant "was employed by [Mingo Logan]" as "a purchasing agent at Mountain Laurel." (Id.) "Part of his duties as purchasing agent required [Defendant] to order parts and products needed in the Mountain Laurel operations." (Id.)

CM Supply, Co. ("CM Supply"), "which was owned and operated by Gary Roeher, was a parts vendor for Mountain Laurel." (Id.) "Among other products, . . . Roeher sold crib blocks to Mountain Laurel." (Id.)

"Beginning sometime around September 2009, . . . Roeher began paying [Defendant] a portion of the profit that CM Supply received on the sale of crib blocks to Mountain Laurel." (Id.) Defendant, "as purchasing agent, provided favorable official action to . . . Roeher and [CM Supply] by selecting [CM Supply] to provide crib blocks at Mountain Laurel . . . in exchange for those kickbacks" (the "Scheme"). (Id.)

"Going forward, [Defendant] would issue, as needed in the coal mining operations of Mountain Laurel, a purchase order for crib blocks to CM Supply." (Id. at 2.) "CM Supply would deliver the crib blocks and then mail an invoice . . . , generally at the end of the month." (Id.) "After receipt of payment, . . . Roeher . . . calculate[d] the amount of money owed" to Defendant "as part of the [Scheme]." (Id.)

For example, "on or about November 15, 2011, . . . Roeher mailed a CM Supply invoice from near his home in Holden, Logan County, . . . for payment for a load of 1,800 crib blocks." (Id.) Roeher knew "that a portion of the profits" for this sale "was going to be returned to [Defendant] for directing the sale to [Roeher]." (Id.)

Mingo Logan's parent company, Arch Coal, paid the invoices sent by CM Supply from a "concentrated" account, which Arch Coal used to pay the "payables of [its] several subsidiaries." (ECF No. 12 at 3; see, e.g., ECF No. 12, Ex. 1 (constituting a July 2, 2009 check from Arch Coal to CM Supply).) "[I]mmediately upon payment, the entries for these payouts were transferred to the corporate books of [Mingo Logan]." (ECF No. 12 at 3.)

"As a general practice, . . . Roeher usually paid [Defendant] seven-and-one-half percent . . . of the crib block sales price." (ECF No. 5, Ex. B at 2.) "Roeher estimates that between September 2009 until at least March 2014, he paid [Defendant] approximately $230,000 in cash kickbacks as part of the [Scheme]." (Id.) Defendant "concealed and covered up his participation in the [S]cheme from Mingo Logan . . . , Arch Coal, and its representatives," such as by "receiv[ing] the cash kickbacks from . . . Roeher at locations away from Mountain Laurel to avoid the detection of their [S]cheme." (Id.)

On June 2, 2015, the Government filed a single-count Information against Defendant, which charges him with honest-services mail fraud and aiding and abetting in violation of 18 U.S.C. §§ 1341, 1346, and 2.¹ (ECF No. 1 at 4; see also id. (alleging, in part, that "[o]n or about November 15, 2011," Defendant, "together with . . . Roeher, . . . for the purpose of executing the [S]cheme, . . . did knowingly cause to be delivered by mail . . . an invoice for crib blocks from CM Supply addressed to Mountain Laurel").) The Information alleges, in part, that Defendant "together with . . . Roeher . . . and others known and unknown to the United States Attorney, devised and intended to devise a scheme and artifice to defraud and deprive Mingo Logan . . . of its right to the honest and faithful services of [Defendant]."² (Id. at 2.) On November 18, 2015,the Government filed a plea agreement wherein Defendant agrees to plead guilty to the charge in the single-count Information. (ECF No. 5.) This plea agreement is signed and initialed by Defendant and includes an attached Stipulation of Facts. (See id.; id., Ex. B (Stipulation of Facts).)

On November 18, 2015, the Court entered an order directing the parties to file briefing regarding the factual basis for the proposed plea. (ECF No. 6.) The parties separately filed briefing in response to this order on December 2, 2015. (ECF Nos. 7 & 8.) The Court then held a hearing regarding the factual basis for the proposed plea on January 19, 2016. (ECF No. 10; see also ECF No. 11 (constituting the transcript of the January 19, 2016 hearing in this case).) Following this hearing, the Government filed supplemental briefing regarding the factual basis for Defendant's proposed plea. (ECF No. 12.) Thus, the issue of whether there is a factual basis for Defendant's proposed plea is fully briefed and ready for disposition.³

II. Legal Standard

"A voluntary and intelligent plea of guilty is an admission of all the elements of a formal criminal charge and constitutes an admission of all material facts alleged in the charge." United States v. Willis, 992 F.2d 489, 490 (4th Cir. 1993) (citations omitted). Nonetheless, Federal Rule of Criminal Procedure 11 provides that, "[b]efore entering judgment on a guilty plea, the court must determine that there is a factual basis for the plea." Fed. R. Crim. P. 11(b)(3). "[T]he Rule ensures that the court make clear exactly what a defendant admits to, and whether those admissions are factually sufficient to constitute the alleged crime." United States v. DeFusco, 949 F.2d 114, 120 (4th Cir. 1991) (citing United States v. Fountain, 777 F.2d 351, 355 (7th Cir. 1985), cert. denied sub nom. Granger v. United States, 475 U.S. 1029 (1986)). "The requirement to find a factual basis is designed to 'protect a defendant who is in the position of pleading voluntarily with an understanding of the nature of the charge but without realizing that his conduct does not actually fall within the charge.'" United States v. Mastrapa, 509 F.3d 652, 660 (4th Cir. 2007) (quoting Fed. R. Crim. P. 11 advisory committee's notes (1966)).

"In determining whether a guilty plea has a factual basis, the district court need not rely only on the Rule 11 plea colloquy." Id. Rather, the court "may conclude that a factual basis exists from anything that appears on the record." Id. (emphasis added) (quoting DeFusco, 949 F.2d at 120). "This Court regularly relies upon undisputed facts and inferences arising therefrom taken from stipulations of fact, direct inquiry to defendants during Rule 11 hearings, and information in presentence reports to which no objection is made in assessing the factual basis for pleas." United States v. Dixon, --- F. Supp. 3d ---, Criminal Action No. 2:14-cr-00236, 2016 WL3248508, at *4 (S.D. W. Va. June 13, 2016). "This list is by no means exhaustive, as the factual basis may be found from anything in the record." Id. (citing Mastrapa, 509 F.3d at 660).

"[T]he district court . . . 'need only be subjectively satisfied that there is a sufficient factual basis for a conclusion that the defendant committed all of the elements of the offense.'" United States v. Ketchum, 550 F.3d 363, 366 (4th Cir. 2008) (quoting United States v. Mitchell, 104 F.3d 649, 652 (4th Cir. 1997)). However, defendants do not have an "absolute right to have a guilty plea accepted" and the "court may reject a plea in exercise of sound judicial discretion." Santobello v. New York, 404 U.S. 257, 262 (1971). "The trial court has wide discretion in determining whether a factual basis exists." United States v. Morrow, 914 F.2d 608, 611 (4th Cir. 1990) (citing United States v. Lumpkins, 845 F.2d 1444, 1451 (7th Cir. 1988)).

III. Background on the Honest-Services Doctrine

The honest services iteration of mail and wire fraud has a long and strained history. "The federal mail fraud statutes were first enacted in 1872 as part of a recodification of the postal laws to protect citizens from the use of the mails in furtherance of schemes to defraud." United States v. Mandel, 862 F.2d 1067, 1071 (4th Cir. 1988) (citations omitted). "[T]he original mail-fraud provision . . . proscribed, without further elaboration, use of the mails to advance 'any scheme or artifice to defraud.'" Skilling v. United States, 561 U.S. 358, 399 (2010) (citation omitted). "In 1909, Congress amended the statute to prohibit, as it does today, 'any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.'" Id. at 399-400 (emphasis omitted) (quoting 18 U.S.C. § 1341). "Emphasizing Congress' disjunctive phrasing, the Courts of Appeals, one after the other, interpreted the term 'scheme or artifice to defraud' to include deprivations not only of money or property, but also ofintangible rights," thereby giving rise to an honest-services theory of mail and wire fraud. Id. at 400; see also Mandel, 862 F.2d at 1071 (noting that "the lower federal courts began expanding the scope of the rights protected by § 1341 to include certain intangible rights" in the 1970s (citations omitted)). "Unlike fraud in which the victim's loss of money or property supplied the defendant's gain, . . . the honest-services theory targeted corruption that lacked similar symmetry." Skilling, 561 U.S. at 400 (citation omitted). "While the offender profited, the betrayed party suffered no deprivation of money or property; instead, a third party, who had not been deceived,...